Many Cut Car Insurance to Save Money

January 2009

Many motorists are dropping their car insurance in an effort to save money in the struggling economy. In fact, a report written by the Insurance Research Council states that, "a single percentage point increase in the unemployment rate is associated with a half-point increase in the percentage of uninsured drivers." While eliminating auto insurance may appear to bring short-term savings, it can put everyone on the road at risk and produce long-term financial burdens.

In the past year, several hundred thousand drivers dropped their car insurance coverage, according to the council. Uninsured motorists involved in car accidents can be sued for any assets they own in a court judgment. Moreover, driving without insurance is illegal in 48 states and the District of Columbia. Additionally, in many cases, those who have let their coverage lapse must pay an initial 25 percent to 50 percent surcharge for a new policy.

If you are hit by someone without insurance, you may have to sue to recover costs, but the person may have few assets. To provide protection in this situation, about 20 states require drivers to purchase uninsured or underinsured motorist coverage. This compensates policy owners and their families for injuries sustained in hit-and-run accidents and by drivers without insurance.

Some drivers have always taken the risk of driving without auto insurance. In a 2006 study, the research council reported that about 15 percent of drivers were uninsured in 2004. In some states, like Arizona, California, and Mississippi, approximately 25 percent of drivers were not insured.